Quantifying contagion among European banks from the Great Recession to the Pandemic crisis using Network Analysis

Introduction In the last 20-years, two economic crises have affected the European financial system: the Great Recession and the Pandemic crisis. The first was an economic crisis that lasted from 2007 to 2013 with a broad range of causes ranging from the strong trade imbal- ances between China and the US to the financial bubble that burst in the US real estate market until the excessive use of complex derivative instruments such as CDOs or CDO squares Corden [2009]. The second crisis was caused by the outbreak of the Covid-19 pandemic that has forced governments around the world to introduce measures of social containment as well as a limitation to economic activity. The two crises are comparable for the overall size of the actors involved as well as for the strong negative shock to which the real economies around the world have been sub- jected. The source of the shock is the first main difference between the two crises. In the first case, the causes of the crisis were endogenous to the economic system. The secondoriginatedfroma"pure"blackswancomingoutsidetheeconomyDanielssonand Shin [2002] and Danielsson [2020]. The Great Recession was a financial and economic crisis while the nature of the Covid 19 pandemic has severely affected the real economy. Thelinkbetweentherealeconomyandthefinancialsectorisveryclose. Thetwonatures ofthe economic system are nothingmore than two sidesof thesame coin. Thecomplex- ityofthemoderneconomicsystemaswellasthegreatuncertaintythatstillcharacterizes the Pandemic crisis cannot fail to think that the crisis from the real economy turns into a financial one.